Supply Chain (SCM): Traditional Vs Modern (Digital)

What is Supply Chain (SCM)?

The supply chain is a global network used to deliver products and services from raw materials to customers, through an engineered flow of information, physical distribution and cash. In other words, supply chain management (SCM) includes the design, planning implementation, control and monitoring of supply activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand, and measuring performance worldwide. It is ecosystem of processes, systems, and entities that work together to transform an idea into a final product and customer-ready offering. That lifecycle consists of multiple moving parts.

In Simple words, A supply chain is a global network that ensures the delivery of products and services domestically as well as internationally. A supply chain ensures product delivery from raw materials to the final customers, by using a definite structure involving an efficient network and productive information channel. 

The basic supply chain of any product involves raw materials, producer, distributor, retailer and the customer. It involves every aspect, including purchasing, inventory management, production, distribution, logistics, shipping, vendor and distributor management, and information technology.

As global supply chain complexity increases, organizations in every industry require robust and reliable supply chain management (SCM) tools, processes, and people. Coordination of the supply chain is critical for efficiency and optimization.

Traditional Supply Chain Management:

Traditional supply chains are reactive. They operate on rules based on historical transactions. Traditional supply chains usually rely on standalone systems which function in siloes with little or no data-sharing.

These supply chains involve processes where a product evolves from the procurement of raw materials to production and delivery to the end customer. Thus, the key elements of traditional supply chains are:

1. Collection of raw materials: The first step involves the collection of raw materials required to make the final product. The raw materials concerned could be of a single type, or may include several other products to be collected from various sources.
2. Collection of material from the suppliers: The manufacturers must acquire all the required raw materials to produce the ultimate finished product.
3. Manufacturing: The manufacturer then initiates and completes all the processes required for producing the finished product. Various procedures may be involved like making paper, binding of papers, covering the book, etc. and different equipment may be used for each process. The company then packs the books together in boxes and prepares it for shipping and delivery.
4. Distribution to the customers: A process where the finished product, i.e. the book in this example, is distributed to the retailers.
5. Consumption by the end customers: The last step is the purchase of the finished products by the customer. In this example, the book may be used for the various purposes by different people. 

Disadvantages of traditional supply chains are:

1. Traditional supply chains and SCM focus only on production and provision, not on customer needs. They also are not optimized and lack the “intelligence” to spot problems along the value chain quickly.
2. Even after a problem is identified, predicting its likely effects and finding a fix can require considerable time and effort. That delays production, introduces errors, and increases the time-to-market — all of which can harm customer satisfaction and corporate profits.
3. Limited visibility and lack of real-time data, which:
4. Complicates performance analysis and ability to identify gaps
5. Reduces accountability
6. Slows down and reduces the quality of decision-making
7. Impacts ROI
8. Less agile and responsive to changing market conditions
9. Higher cost of goods sold (COGS) and lower profits

This is how the traditional SCM system works. 

Modern (Digital) Supply Chain Management:

Today, as technology has been evolving greatly, traditional methods are being replaced by modern ideas and strategies. With the advancement in technology, SCM has become entirely digital and lead to a system called Modern SCM. 

In comparison to traditional supply chains, digital supply chains are dynamic and able to adapt quickly to changing circumstances (market disruptions, political turmoil, pandemics, and so forth). They function in real-time and are highly agile “value networks” with integrated systems and processes.

In these supply networks, contextual, relevant, and timely data from information technology (IT) and operational technology (OT) systems are integrated and readily available to every process in the ecosystem.

Key Elements

The key elements that differentiate a digital supply chain from a traditional supply chain are:

Technology

Digital supply chains incorporate modern processes, strategies, and technologies, including:

1. Cloud computing and software-as-a-service (SaaS)
2. Artificial intelligence (AI)
3. Machine learning (ML)
4. Natural language processing (NLP)
5. Big data
6. Business intelligence
7. Virtual reality and augmented reality
8. Robotics and robotic process automation (RPA)
9. Internet of things (IoT)
10. These technologies offer automation and predictive analytics capabilities. Organizations are better equipped to improve time-to-market, anticipate and resolve problems quickly, shorten planning cycles, improve decision-making, and deliver value to all stakeholders. Digital supply chains are more resilient and adaptable to future challenges and opportunities.

Logistics Management
Today’s supply chains leverage cutting-edge logistics management software. Such solutions allow supply chain managers to plan, implement, control, and optimize the flow of goods and materials; all to minimize cost and maximize ROI.

Partnerships
Unlike traditional supply chains, digital supply chains are not standalone or static. They are interconnected, dynamic, and agile. They focus on building mutually beneficial partnerships and nurturing stakeholder relationships. Digital supply chain management is about collaborating and building alliances with supply chain partners to help optimize the entire value chain.

Customer Focus
Digital SCM is not just about bringing the product to the customer in a transactional way. It’s also about delivering value and building long-term customer relationships. Further, digital supply chains don’t focus on a single node, shipment, or order optimization. Rather, they evaluate the entire supply chain as a whole, to achieve the highest possible levels of profit, service levels, and customer experience.

Drawbacks of Modern Supply Chain System:

1. Of course, digital supply chains are not perfect. Since they leverage internet-enabled digital technologies, they introduce an element of cybersecurity risk. For example, IoT sensors and smart systems are vulnerable to cyberattacks and data breaches. Moreover, since digital supply chains are so well-connected, an attack or threat on one part of the network could propagate across the entire supply chain — sometimes all the way to the customer.
2. Another potential drawback is that upgrading your supply chain requires significant capital expenditure. Even though the returns are measurable, not every company can afford the initial investment in infrastructure and resources.

These issues, however, are not insurmountable; and they should not deter your digital transformation efforts. A sustainable supply chain plan is a must-have to protect your supply chain ecosystem.

Traditional SCM Vs Modern SCM

Here are the key differences between both:

1. Traditional SCM focuses only on production and provision, whereas Modern SCM focuses on the needs of the customers in general. For example, most of the freight companies also aim to improve the value of the product delivered to the customer, rather than just focusing on the aspect of distribution.
2. Modern SCM allows any business organization to experience the value in creating a partnership, whereas the traditional SCM allows listed companies to follow a single pathway.
3. The organizations operating under Modern SCM create and provide value to the product which is consumed by the final customer. Whereas, traditional SCM has no such strategies to improve the value of the finished product.
4. Modern technologies and strategies are incorporated into Modern SCM. Whereas the traditional SCM follows the old methods. To explain further, we can consider the example of a book that is yet to be published. The traditional system involves the collection of raw materials, supplying them to the manufacturer, manufacture of the book, printing of content, packing, shipping, and delivery. The Modern Supply Chain Management cuts down all these processes by simply publishing an e-book.
5. Modern SCM allows faster progression than Traditional SCM. Modern SCM enables the companies to use highly advanced and integrated technology systems to ensure the expansion of the portfolio of the customers which does not happen with the traditional SCM.
6. Modern SCM also utilizes logistics management which is a system that plans, implements, and controls the forward and reverse flow of goods. It ensures the process is effective and efficient, and also ensures the safe delivery of the goods. Unlike Modern SCM, Traditional SCM does not use any tool like logistics management which is used by most of the shipping across the world today.
7. Modern SCM focuses more on building partnerships, alliances, and collaborations. With improved relationships with the suppliers, companies can build trust leading to long-term relationships. This has enhanced the export and import of goods to distant places too.

Why Are Businesses Switching to a Digital Supply Chain?

A digital supply chain is characterized by a network of interconnected digital and technological enablers. These enablers simplify SCM and help companies better respond to and satisfy their customers’ evolving demands. Companies can now deliver products more quickly, offer more choices, and hyper-personalize to customers across various fulfillment channels.

Supply chain processes can be automated to save time, improve quality, reduce costs and working capital requirements, and boost profits. Traditional supply chains with manual, silo-based processes cannot deliver these benefits at the same level.

While the interconnected nature of a digital value chain results in greater complexity that organizations must manage to maintain stability and optimize outcomes, technology again comes to the rescue. Data-driven intelligent automation tools like AI, ML, NLP, and advanced analytics simplify planning and performance management in digital supply chains.

These tools also empower organizations to incorporate process automation, respond more quickly to customer demand and supply dynamics, and get better visibility into the entire supply chain. Visibility boosts accountability, enables organizations to identify operational disruptions, improves vendor performance, and optimizes profitability, ROI, and competitive advantage.

Up-to-date and real-time data is a key differentiating feature of digital supply chains. Supply chain managers can leverage data and transactional reporting to improve and optimize:

1. Raw material flows
2. Logistics
3. Inventory
4. Cashflow, expenses, and pricing
5. Forecasting
6. Supply and demand planning
7. Resource planning
8. Preventive maintenance
9. Overall supply chain strategy

Digital supply chains offer the following additional benefits:

1. Improved coordination and collaboration among stakeholders at every stage
2. Faster issue identification, response, and remediation
3. Support for ongoing disruptive innovation
4. Improved predictions for planning, product quality, safety, and customer experiences
5. Optimized inventory
6. Lower cost of goods sold and higher profits

Hope you find this article interested and easy to understand.. 

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